Fed maintains QE pace, prepared to alter as economy evolves

The Federal Reserve said it will keep buying bonds at a monthly pace of $85 billion while standing ready to raise or lower purchases as economic conditions evolve.

“The committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes,” the Federal Open Market Committee said yesterday at the conclusion of a two-day meeting in Washington.

Chairman Ben S. Bernanke is pressing on with his effort to boost employment as 11.7 million Americans remain jobless almost four years into the expansion. Today’s statement highlights the option to boost purchases in response to data showing economic growth is slowing, in contrast with discussion of the timing of a reduction in the pace of buying at the Fed’s March meeting.

“The statement gives them flexibility on the upside and the downside,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “The whole debate had centered on when to taper off. Given some of the latest data, the Fed could be more aggressive in its policy.”

The Fed repeated that bond buying will continue “until the outlook for the labor market has improved substantially.” It also left unchanged its statement that it plans to hold its target interest rate near zero as long as unemployment remains above 6.5% and the outlook for inflation doesn’t exceed 2.5%.

Purchase Pace

The bar for increasing the pace of purchases “is high,” and growth hasn’t slowed enough to trigger a boost, said Julia Coronado, chief economist for North America at BNP Paribas in New York.

“We would have to be in a significant economic deterioration,” said Coronado, a former Fed economist. “More than likely they will just stay the course much longer than they thought.”

Stocks and Treasury yields remained lower after the statement. The Standard & Poor’s 500 Index fell 0.9% at the close of trading to 1,582.70, while the yield on the 10-year Treasury note slid to 1.63% in New York, the lowest of the year, from 1.67% yesterday.

The central bank said today that it expects “economic growth will proceed at a moderate pace, and the unemployment rate will gradually decline.”

The Fed said that fiscal policy “is restraining economic growth.” In its previous statement, the committee said fiscal policy has “become somewhat more restrictive.”